Consolidate Small Business Debt


Consolidating Small Business Debt: A Helpful Guide

Running a small business can be extremely rewarding, but it also comes with financial challenges. Many business owners end up juggling multiple debts like business loans, credit cards, and lines of credit. This can make it hard to keep up with all the payments and due dates. If this sounds familiar, you may want to consider consolidating your small business debts.

What Is Small Business Debt Consolidation?

Debt consolidation simply means combining multiple debts into one new loan. The goal is to simplify repayment by having a single monthly payment instead of many. Consolidating can also help you secure a lower interest rate, which reduces the total cost of borrowing.For example, let’s say your business has:

  • $10,000 owed on a credit card with 18% APR
  • $15,000 business loan at 10% APR
  • $5,000 line of credit at 15% APR

You could take out a new consolidation loan for $30,000 at 8% APR to pay off those debts. Now you have one monthly bill at a lower rate.

Top 5 Benefits of Small Business Debt Consolidation

Consolidating your business debts into one loan can offer many advantages:

  1. Lower monthly payments. You may be able to get a lower monthly payment after consolidating, freeing up cash flow.
  2. Lower interest rate. The new loan could have a much lower rate, saving you money each month.
  3. Longer repayment term. Stretching out payments over more years reduces the monthly burden.
  4. Simplify repayment. One loan and one monthly bill is much easier to manage than many.
  5. Improve credit score. Making on-time payments on the new loan can help improve your business credit.

How to Qualify for a Small Business Debt Consolidation Loan

The requirements to qualify for a consolidation loan vary by lender but often include:

  • Time in business – Most want at least 2 years in operation
  • Annual revenue – Minimum of $100k to $500k+
  • Personal credit score – Minimum in the mid 600s
  • Debt-to-income ratio – Varies but often below 50%

Having collateral like equipment, real estate, or investments can help you qualify as well.Be prepared to provide tax returns, bank statements, profit/loss statements, and other financial documentation. The more you can prove your ability to repay, the better your chances of approval.

Where to Get a Consolidation Loan for Your Small Business

There are many options when it comes to finding a lender for small business debt consolidation:

  • Banks – Local banks and credit unions may offer competitive rates and flexible terms. There’s something to be said for the personalized service and relationship you get from a traditional lender.
  • Online lenders – Companies like LendingClub, Fundbox, and Credibly offer online applications, quick decisions, and financing up to $500k. The convenience makes them appealing.
  • SBA loans – The Small Business Administration guarantees loans made by approved lenders. SBA-backed loans help those who may not qualify for traditional financing.
  • 401(k) business financing – Some companies let you use your 401(k) savings as collateral for a business loan. This avoids tapping into your home equity.
  • Credit cards – Balance transfer cards can be an option for consolidating if you get a high enough limit and 0% intro APR period.

Shop around and compare multiple lenders to find the best loan terms and lowest rate possible.

The Pros and Cons of Small Business Debt Consolidation

Consolidating your debts isn’t automatically the right choice for every business. Consider the potential benefits and drawbacks:Pros

  • Lower monthly payments
  • Lower interest rate
  • Simplify repayment
  • Possible credit score improvement


  • Loan fees/closing costs
  • Lengthy application process
  • Higher total repayment costs
  • Temptation to rack up new debt

Look at the total interest cost with and without consolidating before deciding if it’s right for your situation.

Other Small Business Debt Relief Options

If consolidation isn’t ideal, here are a few other ways to tackle business debt:

  • Debt management plan – Work with creditors to negotiate reduced interest rates or waived fees.
  • Credit counseling – Get guidance from a non-profit credit counseling agency.
  • Debt settlement – Lump sum settlements save money but hurt credit scores.
  • Bankruptcy – Legal process for eliminating debts you can’t repay.
  • Business loan refinancing – Could lower payments or rate on existing loan(s).

Don’t struggle with business debt on your own. Talk to a financial advisor or small business expert to map out the best path forward.

Frequently Asked Questions About Small Business Debt Consolidation

Here are answers to some common questions business owners have about consolidating debts:Can I use an SBA loan to consolidate debt?Yes, SBA 7(a) and 504 loans can be used for debt consolidation and refinancing. The max loan amount is $5 million.Will consolidating hurt my business credit score?It may cause a small temporary dip, but if you make consistent on-time payments it can actually help improve your score over time.Where can I find a debt consolidation calculator?Many online lenders have calculators to estimate potential savings. Bankrate and NerdWallet also have easy consolidation calculators.Should I tap home equity to consolidate business debt?Using a home equity loan or line of credit is an option, but it puts your home at risk if you default. Consider all other business financing options first.Can I use retirement funds to consolidate business debts?Yes, you may be able to use funds from a 401(k), IRA, or other retirement account as collateral for a loan through specialty lenders.

Explore Your Business Debt Consolidation Options

The bottom line is that consolidating debts probably won’t solve all your financial problems. But it can be a helpful tool to simplify repayment and save money each month. Shop around, run the numbers, and consult experts to decide if it’s the right strategic move for your business situation.With the right consolidation loan, you can stop stressing over all those monthly bills and focus on what matters most – managing and growing your business. Don’t let debt hold your small business back.

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